Studio supports Sony's format

In a stunning announcement, Paramount Home Entertainment has decided to support Sony’s Bluray disc format for the next generation of high-definition DVDs.

Although Par will continue to support Sony’s rival HD DVD platform from Toshiba as well, the studio is the first to end its singular commitment to one format.

Several execs in each camp believe the Paramount announcement to publish in both formats, which is the direction Warner has been leaning for the past week or two (with a similar announcement expected this week), is simply a temporary face-saving strategy and that ultimately all studios will shift completely over to Blu-ray by launch time next spring.

The addition of Paramount to the Blu-ray side means studios repping 59% of the homevid market now plan to release in Blu-ray, while HD DVD accounts for 45%. (Overlap is due to dual support.)

Many in the industry have observed that momentum has been swinging toward the Blu-ray camp, particularly after the HD DVD studios abandoned a plan to release the first batch of DVDs in the format this holiday season. Toshiba also pushed back the release of the first HD DVD player until next year.

Thomas Lesinski, Paramount Pictures president of worldwide home entertainment, previously one of the staunchest supporters of HD DVD, said in a statement Sunday that the studio will release movies on Blu-ray in North America, Japan and Europe as soon as Blu-ray hardware launches in those markets.

“We have been intrigued by the broad support of Blu-ray, especially the key advantage of including Blu-ray in PlayStation 3,” Lesinski said in a statement. “After more detailed assessment and new data on cost, manufacturability and copy protection solutions, we have now made the decision to move ahead with the Blu-ray format. We believe the unique portfolio of Viacom content coupled with this format will provide great benefit for consumers and our shareholders alike.”

A format war is precisely what studios, hardware manufacturers, retailer and consumers were trying desperately to avoid. The introduction of two incompatible formats has the potential to cause a much slower adoption of a new format for their movies, games, music and other programming as consumers hesitate to pick one for fear of selecting the next Betamax that will quickly be obsolete. Studios and hardware manufacturers managed to find a compromise solution on DVD, which led to the introduction of the most successful consumer electronics product ever.

With the DVD market rapidly maturing and slowing to single-digit growth rates, media companies, which derive most of their studio revenue and profits from DVD, are pressuring their home video and consumer electronics units to get the next-gen format into the market as quickly as possible, whichever one it is, in order to rejuvenate sales of their vast libraries of TV, movie and music programming on discs.

“All we’re doing is guaranteeing a format war,” a top exec at one studio DVD division said about the Paramount announcement.

Sony Pictures Home Entertainment president Ben Feingold said that while the Paramount announcement is very important to the Blu-ray camp, “being on both formats will confuse the consumer.”

“Launching with a single format is the only way to get back quickly to double-digit compound growth,” Feingold said.

Warner’s softening position was believed to be what motivated Microsoft and Intel to announce support of HD DVD last week.

But many said at the time that announcement was too little, too late.

HD DVD will likely debut around the same time as Blu-ray, which has set mid-2006 as its launch date. Microsoft will not commit to including HD DVD in its next-gen Xbox 360 system.

In fact, the PlayStation 3 factor — Sony will not be swayed from introducing Blu-ray, since the format is locked as a component of millions of PS3 machines next spring — is believed to be what has turned Paramount and Warner around in their thinking.

Despite the defection, HD DVD backers remained resolute.

“When HD DVD goes to market early next year, and while the [Blu-ray] group is struggling with manufacturability of their products and consumer concerns with its copy protection, we’ll see how the two formats truly stack up,” Microsoft media and entertainment topper Blair Westlake said.

WHV is believed to be under great pressure from parent Time Warner, which has its own pressures relative to the recent stock performance challenges by Carl Icahn, to do whatever it takes to get a high-def disc to market at the earliest possible time in order to rejuvenate the maturing DVD market.

While it would be a little more expensive to release movies authored and inventoried in two different formats, it’s something the studios have done before with Betamax and VHS and even laserdisc and 8mm, in some cases. And it’s something the videogame industry has become used to.